Times are getting tougher for many Americans, and for some, that means facing the distressing possibility of losing their vehicles. Just ask Karen LeSage, a 57-year-old single mother from East Hartford, Connecticut, for whom her car is not a luxury, but a necessity. LeSage relies on her vehicle to get to crucial medical appointments for leg injuries and to pick up her teenage daughter, who experiences seizures, from school. “I have to go pick her up,” LeSage explains, emphasizing that without her car, this essential task would be impossible. Last year, the looming threat of repossession became a harsh reality as LeSage struggled to keep up with payments. “For me, every penny counts, and just to lose a couple of cents on gas is devastating sometimes,” she shares, highlighting the precarious financial situation many are facing.
Karen LeSage emphasizes the critical role of her car for daily needs, highlighting the potential impact of rising auto repossessions on individuals and families.
LeSage’s story is not unique. She is among a growing number of individuals across the United States grappling with financial strain as the nation’s economy shows signs of cooling down. Recent data from the U.S. Bureau of Economic Analysis reveals a significant drop in gross domestic product growth, falling to 1.1% in the first quarter – the lowest in nine months. This economic slowdown is increasingly impacting household finances, leading to a concerning rise in auto repossessions and other financial hardships.
Economic Slowdown Fuels Financial Hardship
The pinch of a slowing economy is becoming increasingly evident in the personal finances of American households. A recent Bankrate survey revealed that nearly half of U.S. adults, a staggering 49%, have less savings now than they did a year ago. Alarmingly, 10% of those surveyed reported having no savings whatsoever. This lack of financial buffer makes families more vulnerable to economic shocks and increases the risk of falling behind on essential payments, including car loans.
This financial vulnerability is manifesting in tangible ways, most notably in the rising rates of auto repossessions and home foreclosures across the country. Margaret Rowe, a senior director at Fitch Ratings group, points to the expiration of government stimulus measures and current economic headwinds as key factors driving this trend. “As a result of the expiration of government stimulus and current [economic] headwinds, we have seen delinquencies ticking up in this space over the last several months,” Rowe explains.
Auto Loan Delinquencies Mirror Pre-Pandemic Levels
Data from Fitch highlights a worrying trend in auto loan delinquencies, particularly among subprime borrowers. These delinquencies have essentially climbed back to the levels seen before the pandemic, erasing the temporary reprieve experienced during the record lows of summer 2021. This return to pre-pandemic delinquency rates suggests that the financial pressures on vulnerable borrowers are intensifying, increasing the likelihood of auto repossessions.
Chart illustrating the rise in auto loan delinquencies among subprime borrowers, indicating a return to pre-pandemic levels and highlighting the growing financial strain.
Home Foreclosures Experience a Significant Surge
Adding to the picture of increasing financial distress, home foreclosure filings are also on the rise. According to ATTOM, a property analytics firm, U.S. foreclosure filings reached a total of 95,712 in the first quarter of 2023. This represents a 6% increase compared to the previous quarter and a significant 22% jump from the same period last year. March alone saw 36,617 properties in foreclosure, marking a 20% increase from February and a 10% increase year-over-year. Notably, this marked the 23rd consecutive month of year-over-year increases in foreclosure activity, signaling a sustained upward trend.
Rob Barber, CEO of ATTOM, explains that part of this increase is due to lenders processing a backlog of foreclosures that accumulated during the federal foreclosure moratorium implemented during the pandemic. This moratorium, which ended in July 2021, provided temporary relief to homeowners but also created a backlog of cases that are now being addressed. By the time the moratorium concluded, an estimated 2 million homeowners had fallen behind on their mortgage payments due to job losses and other pandemic-related hardships.
Economic Rebound and Home Equity Offer a Partial Buffer
Despite the surge in foreclosure filings, Barber points out that the increase has not been as drastic as initially anticipated by some economists. The strong economic rebound experienced during the pandemic, including a year-long surge in home buying fueled by low interest rates, provided some financial relief for homeowners. Furthermore, historically low unemployment rates have allowed many delinquent homeowners to catch up on their mortgage payments.
Another factor mitigating the foreclosure crisis is the substantial increase in home prices over the past few years. This surge in prices has led to increased homeowner equity. ATTOM data indicates that 94% of homeowners with mortgages had built up equity in their properties by the fourth quarter of last year, with nearly half considered “equity-rich.” This equity provides an incentive for homeowners to find ways to get current on their loans, as they have more to lose if they face foreclosure. “More income, more equity and lower payments set the stage for a more modest rise in foreclosures than predicted,” Barber concludes.
Uncertain Outlook Amidst Economic Shifts
However, Barber cautions that the outlook for the remainder of the year remains uncertain. The evolving housing market, coupled with rising mortgage interest rates and persistent inflation, creates a complex and potentially volatile economic landscape. “It’s likely that foreclosure filings will keep rising, but nothing like we saw back when the bubble burst in 2008,” Barber predicts, referencing the financial crisis of 2008-2009. This suggests that while a dramatic surge like the 2008 crisis is unlikely, a continued gradual increase in foreclosures, and potentially auto repossessions, is anticipated.
Rick Burrows, 61, from St. Charles, Missouri, experienced the harsh realities of these economic pressures firsthand. After facing a two-month hospitalization for Covid-19 in 2020 that led to prolonged unemployment and a credit score decline, Burrows faced foreclosure on his home despite being close to paying off his mortgage. Adding to his financial woes, his car, essential for his work serving legal papers, was repossessed in 2021. “It seems like every time I turn around financially, just as I start to be able to get back on solid ground something else happens,” Burrows laments, highlighting the cascading effect of financial setbacks. Even today, the lingering effects of long Covid impact his ability to work consistently, leaving him in a precarious financial situation.
Rick Burrows’ experience underscores the vulnerability of individuals facing health crises and economic instability, contributing to the rise in foreclosures and repossessions.
Recessionary Fears Loom
Fitch economists anticipate a “mild recession” later this year, according to Rowe. Even with expectations of relatively low unemployment, the overall credit quality is expected to deteriorate further. This economic climate increases the risk of more families facing financial difficulties, potentially leading to further increases in auto repossessions and foreclosures.
Taqwetta Crawley, 43, from Hampton, Connecticut, tragically lost her home to foreclosure in January after falling victim to a predatory loan and facing financial devastation when the pandemic hit. Now living with her sister and relying on charity, Crawley emphasizes the human cost of foreclosure and eviction. She recounts being treated poorly by investors and scammers during her foreclosure process and stresses the need for compassion and understanding for those facing similar hardships. Crawley now aims to educate others about available resources and options to prevent foreclosure, hoping to empower individuals facing similar situations.
Seeking Help and Resources
Fortunately, resources are available for homeowners facing financial difficulties. Sarah Bolling Mancini, a senior staff attorney at the National Consumer Law Center, points to programs like the Homeowners Assistance Fund, a Covid-era support initiative. Mancini advises homeowners to proactively communicate with their lenders or mortgage servicers, as many offer forbearance programs that can provide crucial breathing room for distressed borrowers. “It’s important for consumers to reach out proactively,” she emphasizes. However, Mancini notes that support for renters is less available, as pandemic-era assistance programs for renters have largely been exhausted.
Crawley emphasizes the importance of empathy and understanding for those facing foreclosure and eviction. “I want people to understand that a foreclosure and eviction is not indicative of a person being untrustworthy, or a person that doesn’t deserve any sort of empathy or compassion,” Crawley states. “Things happen, situations occur. And some people just don’t have the support system. They don’t have that village, they don’t have the resources, the job that will allow them to fully handle everything.”
Reflecting on his experience, Burrows wishes he had built a larger financial safety net. “I would have tried to save more money, or try to find a way to put money back where I could at least have a cushion to fall on,” he reflects. “Because right now, I don’t have a cushion. I don’t have a cushion at all.” This sentiment underscores the importance of financial preparedness and the devastating impact of economic instability on individuals and families across the nation as auto repos and foreclosures potentially continue to rise.
